In an ever-evolving financial landscape, the decision of whether to become an appointed representative (AR) of a financial advice network, a registered individual (RI) or to pursue direct authorisation (DA) is pivotal for your business's financial stability and your own career progression. It involves weighing up the balance of autonomy against the support systems and networks available to you.
This approach not only determines how you navigate regulatory waters, but it also shapes the foundation of the Consumer Duty fulfilment of providing better outcomes for clients and influences. Given the pivotal role of such a decision, understanding its nuances becomes indispensable for safeguarding your business's future.
What is Direct Authorisation?
Being DA involves applying to the regulator, the Financial Conduct Authority (FCA) for authorisation to conduct regulated financial activities independently. As a DA, you are solely responsible for your business’ compliance, professional indemnity insurance (PII) and business liabilities. Although being DA gives you a greater control over your day-to-day activities, this isn’t the best approach for every business, especially new firms who may not have any previous experience in running a firm.
Being DA means bearing the full responsibility for meeting all regulatory requirements. This includes maintaining appropriate systems for compliance, managing financial risks and ensuring that all activities are conducted within legal frameworks and in line with Consumer Duty requirements. The process of obtaining FCA authorisation is demanding and time-consuming, often requiring extensive documentation and proof of a thorough understanding of regulatory obligations.
There are many advantages to being a DA firm, although the process is long, DA firms have greater control over their business operations, compliance procedures, investment strategies and client relationships. They can design their services and processes to fit their unique business model. These films also have the flexibility to adapt their services, fee structures and business practices more readily to changing market conditions or client demands without the approval of a network.
DA firms retain all their earnings without having to share commissions or fees with a network or another entity making it an attractive choice to many, so although they will bear the cost of compliance and regulatory oversight themselves, they can potentially save money by not paying ongoing network fees or commissions.
However, the financial burdens associated with being DA are also considerable and should not be overlooked, as the costs associated with compliance can be high, including fees for regulatory permissions, ongoing supervision fees, the cost of professional indemnity insurance and costs related to meeting compliance standards. To remain competitive, DA firms also need to keep their fees competitive so taking all of this into account, the running costs can potentially have a significant impact on profit margins and thus impact the longevity of the firm.
As regulations change and adapt, your practice must change and adapt too. Managing compliance and regulatory requirements increases the administrative workload, which can be time-consuming and resource intensive meaning that you spend less time with your clients. Additionally, you also need to ensure that all staff are adequately trained and remain compliant with regulatory standards which requires continuous investment in training and development. Furthermore, having adequate staffing is necessary to manage compliance, administration and client service effectively, which can be even more challenging for smaller firms.
Client acquisition is essential to the profit of any business. DA firms often face stiff competition from larger firms and networks, which may have more resources to dedicate to marketing and thus client acquisition.
While being directly authorised offers greater control and independence and may be an appropriate route for more established firms with a large staff and client base, it also requires significant commitment to compliance, administration and risk management with no background support. These challenges can be particularly daunting for smaller firms or those new to the industry.
What is a Registered Individual?
A RI typically works for a DA business, either on an employed or self-employed basis. RIs must be approved by the Financial Conduct Authority (FCA) to perform certain regulated activities. This ensures that they meet the necessary standards of competence and integrity. The firm is responsible for ensuring that its RIs comply with all regulatory requirements. This includes ongoing training, adherence to professional standards and maintaining appropriate qualifications.
RIs can be either employees or independent contractors of the firm. The nature of this relationship will affect their benefits, responsibilities and the firm's obligations towards them. Their roles are defined by their job descriptions and contractual agreements. These typically include providing financial advice, managing client relationships and meeting sales or service targets.
The demands of staying compliant, keeping up with regulatory changes and managing client needs can lead to long working hours and increased stress. The financial advice industry can be high-pressure, with significant responsibility placed on registered individuals to provide accurate and beneficial advice.
Clients expect high-quality, accurate advice and any failure to meet these expectations can lead to dissatisfaction and potential complaints. The firm usually provides professional indemnity insurance to cover the activities of RIs, protecting both the firm and the individual from potential legal claims, however this is not always the case. Should you do not have the support to fall back on, can lead to a stressful, and potentially expensive, process. Any misconduct or regulatory breach can significantly harm an individual's professional reputation and hinder chances of future employment.
Overall, the relationship between a RI and the firm is characterised by mutual responsibilities and oversight, ensuring that both parties work together to provide high-quality financial advice while maintaining regulatory compliance and professional standards. While being a RI offers the opportunity to build a rewarding career, it also comes with significant responsibilities and challenges. Balancing regulatory compliance, client needs and personal insurance, it requires careful management and dedication.
What is an Appointed Representative?
The world of financial advice can be a lucrative one, but it also comes with a fair share of challenges. Going it alone as a DA firm can be daunting, especially for those starting out. This is where networks come in. Financial advice networks offer a supported structure for financial advisers, allowing them to focus on client service and business growth by becoming an AR.
An AR operates under the regulatory umbrella of an FCA authorised network, which assumes responsibility for the AR's compliance and activities. This arrangement allows ARs to engage in regulated activities without direct authorisation from the FCA. The network is tasked with ensuring that ARs adhere to FCA standards, including assessing their fitness and propriety, monitoring their financial stability, and reviewing their compliance with regulations. AR’s must operate within the scope of activities agreed upon in their contract and are subject to continuous oversight by the network.
Here's a closer look at why becoming an AR can be the right choice for your financial advice career:
Choosing the Right Network
Not all AR networks are created equal. You need a network that aligns with your business goals and personal values that is also cost effective. At the ASHL Group, we support both independent and restricted advice propositions so that no matter what your route to market, we support you on your chosen route.
We have seen the industry go through significant periods of disruption over recent years, from RDR to Mifid and more recently to Consumer Duty. Arguably, having compliance support is the overwhelming benefit of being part of a network.
Interpreting and implementing the many regulatory guidance papers and ensuring that the impacting requirements are both communicated and managed in a way in which they clearly understood and adhered to, ensures that advisers get the essential information that they need, without detracting them from looking after their clients.
The responsibility of the adviser remains to adhere to these processes and to follow the guidance given to them, however, the network will ensure, through its own processes, that this is conformed to and that any shortfalls are managed without risk to you or your clients.
Furthermore, rising back-office expenses and heightened regulatory compliance are causing many financial advisers to re-evaluate how they operate their advisory businesses. An example of these costs would be Professional Indemnity Insurance (PII). With the 2023 data from the FCA highlighting a nationwide average of 3.2% to 3.5%, Sense Network firms’ premiums have continued to compare favourably against the industry average. Currently, contributions across the Network stand at an average of 1.54%, for compliant PII which has landed Sense in the exclusive BareRock ‘Club 20’.
We are lucky to have industry leading experts working within the ASHL Group who are on hand to support you every step of the way. From choosing the right central advice proposition for you to providing advice to ensure that you are working in line with Consumer Duty regulations, you will benefit from having ongoing access to their expertise in order to grow your business.
But every network has experts working for them, right? That’s true, but further to the support from our esteemed colleagues, you will have member only access to our funded ASHL Academy in which you could soon be benefitting from a newly qualified financial adviser within your firm. We understand that mentoring someone to achieving CAS status is time consuming and expensive, this is why we offer programmes from Administrator all the way to Chartered Level 6. The ASHL Academy brings the vision and industry leading compliance standards of ASHL, together with the award-winning pedigree of NextGen Planners, to create a programme that can be tailored to the individual’s learning needs so that they can drop inefficient study methods that don’t serve them. This is backed up with a comprehensive set of on demand study materials accessible at any time.
We also understand that the success of your business requires more than a basic CPD offering which is why we offer over 200 hours of annual development content through live CPD, a business development programme and technology webinars, plus an additional repository of pre-recorded material. Our business development programme offers a unique blend of practical skills, general business development skills and behavioural psychology to help you take your business to the next level. The rapid pace of advancements in technology and software can make it tough to keep up to date. In the world of financial services there are both good and bad emerging trends, which is why we have extended our development offering to include a regular series of technology focused webinars, designed to introduce game-changing solutions that we feel can save our ASHL Group members time and money.
When the time comes that you decide to take a step back, the support doesn’t stop there. Because we work with a range of firms, we often have principals looking to buy. If you are the right fit then we can support in this buyout. If that doesn’t feel quite right, then this is where the ASHL Group’s national model Lync Wealth Management comes into play. Lync Wealth are committed to delivering growth for your business, opportunities for your team and setting up the perfect conditions to optimise your business’s value.
From working closely with all of our firms and understanding their future plans, we create the correct partnerships together within the ASHL Group. Through our national model, we provide a route of acquisition that allows a consistent and protected client journey. Through our practice buyout programme, an acquired business integrates with Lync Wealth over an agreed period, with the integration and handover mapped ahead.
Want to hear more?
There is a common misconception that being part of a network means that you have no control over your business. That just isn’t true in the ASHL Group. Whether you choose an independent proposition under Sense or a pre-built proposition under Lyncombe, we are as involved as you want us to be. We don’t see the point in stifling your creativity and individuality which is why we provide an environment that embraces individuality and flexibility for businesses that want to develop and grow.
The ASHL Group of Companies goes beyond the basics that you would expect of a network. To find out more about our growing financial advice community and our suite of support services, get in touch here, or download our Sense and Lyncombe group services & benefits guide to explore our offerings further.